with Jeff Patton

Counter-Intuitive: lifetime employment makes financial sense

If you believe mainstream economists, we are on the path leading out of “The Great Recession.” But even if this is true, there are a whole lot of jobs in North America, millions of jobs that need to be re-created just to get back to pre-2008 levels.

Supposedly, human resources—people, moms and dads—are one of the critical elements of any corporation’s success. Just listen to this 2009 testimony from two CEOs of America’s largest companies. “We value our dedicated employees,” declared General Electric’s Jeff Immelt. “Loyal and committed employees are critical,” stated the Pfizer’s CEO Jeffrey Kindler. But one has to wonder about the sincerity of these two very well-paid guys.

Despite such affirmations of their workers value, GE’s Jeff Immelt laid off 15,000 of his “dedicated employees” in 2009, while Pfizer’s Jeff Kindler purged thousands of the “loyal and committed” from his firm’s payroll last year.

Of course, such CEOs are merely responding to their balance sheet—and the expectations of Wall Street! Wall Street loves aggressive corporate nut cutters—I mean cost cutters! It routinely boosts the stock price of any company as a reward for firing significant numbers of employees. Why? Duh! Because shedding workers leaves more money in the pot for stockholders and bondholders. Ah, the sweet odour of capitalism.

Consequently, we’ve seen many mass layoffs during this recent “Great Recession.” In Canada alone in 2008 486,000 full-time jobs were lost. As of mid-March 2010, over 810,000 Canadian workers are within weeks of running out of Employment Insurance benefits. And more layoffs are coming to the public service sectors as governments hit with falling tax revenues seek to reduce their budgets.

Layoffs during economic downturns are considered good, sound business practice—a necessary evil. It seems like the intuitive if not the only thing to do. But is it? Surprisingly there is a large American/Canadian company that has created a profitable, enduring business model that is totally counter-intuitive to the use of mass employee layoffs to get through periods of financial recession.

Consider the Lincoln Election Company based in Cleveland, Ohio (about 3,000 employees) with a wholly owned subsidiary in the Toronto area (250 workers). Sales for the world’s largest manufacturer of arc welding machinery plummeted 38% last year. Still, at the end of the year on Dec. 12, 2009, Lincoln Electric’s CEO John Stropki announced—not a large layoff notice—but a bonus cheque for each worker that represented 37% of base pay or about $16,660!

One of this corporation’s earliest managers, James F. Lincoln, believed that avoiding employee layoffs was a sign of a successful manager. Lincoln wrote: “Managers are responsible for efficiency. Efficiency depends on human co-operation. Co-operation demands that fear of losing income be eliminated. This can only be done by guaranteed continuous employment.”

Essentially this company promises lifetime employment to its loyal, committed, and dedicated employees. Such a “no layoff” policy seems impossible to keep today. Yet Lincoln Electric Company has kept its promise for over 60 years and has paid its employees handsome annual bonuses for the last 75 years. Because of such policies Lincoln Electric Company employees trust management. And management knows their employees are willing to work hard, to be flexible, and to risk innovation. Financial compensation fairness while avoiding senior management greed is a key part of Lincoln Electric Company’s prosperous corporate DNA. And it has demonstrably produced good results for company, employees and their families, and the communities they live in.

The Apostle Paul once paraphrased a saying of his teacher Rabbi Hillel. He wrote:

My brothers, God called you to be free. But do not use your freedom as an excuse to do the things that please your sinful self [selfishness]. Serve each other with love. The whole law [concerning human relationships] is made complete in this one command: ‘Love your neighbour as you love yourself.’ If you go on hurting each other [in workplace unfairness and strife] and tearing each other apart, be careful! You will completely destroy each other [and your prosperity] (Galatians 5:13-15 ICB version).

If this simple principle of love for neighbour was incorporated in all of our businesses and homes, how much more prosperity and happiness would our entire society experience? The good news is that in the World Tomorrow caring enterprises like Lincoln Electric will be the norm not the anomaly. But what suffering must we endure as a nation to learn this simple lesson!